UAE's per capita GDP stays high

posted on 17/06/2016: 3108 views

The UAE remains in the highest category for per capita GDP (gross domestic product) in purchasing power parity terms, although nominal per capita income has declined markedly in 2015 across all oil-exporting nations as a result of lower oil prices, Moody's Investors Service said.

At $67,617 in purchasing power parity terms - which is used as the main proxy for income level - the UAE's 2015 GDP per capita ranked in the 95th percentile globally, well above all developed economies except Norway and Luxembourg, the ratings agency said as it reaffirmed the UAE's Aa2 rating and changed the outlook from stable.

"The UAE's economic strength is assessed as 'very high,' reflecting its very high income level, moderately large size, abundant hydrocarbon reserves with low cost of extraction, vibrant non-oil economy, and well-developed infrastructure. This assessment is shared by Aaa-rated Netherlands, Sweden and Switzerland," Moody's said in its research note.

The country's economy is also relatively large in nominal GDP terms, ranking in the top quartile of Moody's-rated sovereigns and pointing to above-average resilience to shocks. The report said hydrocarbons have served as the backbone of the UAE economy, directly contributing 37 per cent of 2015 nominal GDP. The country's oil reserves were estimated at 97.8 billion barrels in 2014, representing six per cent of the world's proved reserves and ranking 7th largest globally.

"Setting the UAE apart from regional peers is its success in diversifying away from petrochemical industries and growing a competitive service sector. The services industries accounted for 52.2 per cent of nominal GDP in 2015 and their share has since increased as a result of a fall in nominal value-added in the hydrocarbon economy. Lastly, the UAE economy benefits from advanced infrastructure, conducive institutional and tax environment, and efficient markets for goods and labour, which combine to produce the highest World Economic Forum competitiveness index in the Middle East and North Africa region after Qatar (Aa2)," Moody's report said.

Ranking 17th globally, the UAE is well positioned to make further progress in developing its non-oil economy, it noted. The ratings agency argued that oil price shock would have muted impact on medium-term growth. "Despite the UAE's relatively high exposure to hydrocarbons, which on average represented 36.4 per cent of nominal GDP and 56.3 per cent of exports (excluding re-exports) during 2010-2015, we do not expect the new oil price regime to dramatically alter the economy's medium-term real growth trajectory," said the report.

It noted that the hydrocarbon sector is projected to make a positive contribution to real growth in 2016 as the country ramps up oil production. Abu Dhabi National Oil Company, the country's flagship oil producer, has recently reiterated its commitment to boosting productive capacity from 3.0 million to 3.5 million barrels of crude oil per day by 2018. The decision to increase the capacity was made in 2014 in response to growing domestic demand for processed hydrocarbons which has so far been met with imported gasoline.

"The UAE's refining capacity is set to nearly double from the starting level of 500 thousand barrels of oil equivalent per day, leading to an increase in domestic refining of crude of over 400 thousand barrels. A combination of greater extraction and refining capacity will allow the UAE to maintain stable volumes of crude oil exports, while significantly reducing imports of refined products," the ratings agency said.

Average daily production levels reported by the government reached 2.99 million barrels over the same period, up from an average of 2.79 million in 2014. "We expect that rising production volumes will add 0.8 to 0.9 percentage points to 2016 real GDP growth," it said.

While UAE's non-oil growth is set to decelerate, recession remains unlikely, Moody's observed. "The non-oil economy decelerated from 5.5 per cent in 2014 to 3.7 per cent real growth in 2015. This relative slowdown is likely to extend into 2016-2017, followed by a gradual recovery in 2018-2019."

The report pointed out that supporting growth in the non-oil economy will be government spending as well as increasing economic activity in trade and financial services.

"Megaprojects will continue to support non-residential construction activity, which will accelerate in the years leading to the World Expo, due to take place in Dubai in 2020. Meanwhile, trade will continue to benefit from lifted Iran sanctions, and growing tourist and transportation traffic. Elsewhere, the financial services sector will benefit from Dubai's positioning as a regional hub as more GCC issuers return to financial markets in light of depressed oil prices and widening fiscal deficits." – Khaleej Times -